Stockouts is an event in which inventory is currently unavailable, preventing an item from being purchased or shipped.
Causes of Stock Outs
There are a lot of things can make stock-outs, it might be affected by these factors:
- Poor inventory management
- Under-ordering due to lack of data
- Poor forecasting processes
- Inaccurate calculation of safety stock
- Inefficiency in replenishment and reordering
- Delay in the supply chain
Effects of Stockout
Stock Outs will make Amazon sellers lose sales, it will lead customers to your competitors. In addition, stock out will also decrease product ranking. In this way, it is difficult for you to go back to get the customers. What’s more, it is not good for your brand and reputation.
So we highly recommend you to manage well your inventory, know when you have to restock and when you have to deal with the long-term storage items.
How to avoid Stock Outs?
1. Forecast demand
It is necessary for you to do demand forecasting. A more accurate forecast can help you maximize cost savings. You can order just enough stock to satisfy demand without overstocking or understocking your warehouse.
Just by Closely monitoring your sales trends, and analyzing your sales history, current order quantities, and on-hand quantities, hence you can make a wise business decision on your inventory.
Of course, we highly recommend you to take inventory management software to help you to do that. Better know your stock level and easily know when to restock according to the accurate data.
2. Master your lead times
Can you accurately master the delay between the purchase order and the supplier’s actual delivery date? Never forget the delay, it is your lead time. You have to make sure your lead time is as short as possible so that you can minimize the time between paying for stock and receiving the revenue.
If the supplier can ship the goods to your warehouse with zero days of lead times, then your business does not even need to keep inventory at all. It is great for your business.
3. Reliable reorder point
Once you have done the demand forecasting and master your lead time, the next thing you have to equip is to build a reliable reorder point. It is means you and your team must know when you should order more stock.
In general, you can refer to the reorder point formula: Reorder Point= (Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock
Of course, you have to know your reorder points will be different for every individual product that you sell. Items are likely to have different demand rates and vary in how long it takes to receive the replenishment delivery.
4. Make use of safety stock
Safety stock is extra inventory that is carried to prevent stock-outs. Safety stock can help you prevent unexpected spikes in demand, compensate for incorrect market forecasts, provide a buffer for exceeding expected lead times, and ultimately prevent out-of-stocks.
There also have a formula for you to calculate your safety stock: Safety Stock Inventory= (Max Daily Sales x Max Lead Time in Days) — (Average Daily Sales x Average
5. Keep good relationships with your vendor
You and your vendor are partners, they can do more for you not just for supplying products to you. You can negotiate with them about the shipping costs and product availability. If you can keep a good relationship with them, Sometimes they can help you solve the problem when you encounter an inventory emergency.
Even so, stock out is sometimes unavoidable, especially for FBA. Even if you have planned well for your inventory, sometimes you will encounter out of stock. So I want to share with you some tips to minimize the impact of the stock-outs.
At this time, you need to estimate how long the remaining inventory can be sold. When you find your current inventory can only last for a week, what you need to do first is that you can lower the price of your product.
Maybe someone will doubt that, don’t hurry! I will explain that to you.
Lower the price of your products without losing money, and if you have created the ads for the product, just keep it and you can give more budget for it. In this way, you will have a lot of sales and your product rank will increase a lot.
Then, after the stock is completely out of stock, you must keep the listing in a currently unavailable state. Don’t do anything at this time.
In this way, after replenishing the stock within two weeks, you will find the ranking of the product has not changed, or even higher. If you are lucky, you will find that it is even stronger than before the out of stock.
If it will take you more than 2 weeks to finish the replenishment, you’d better create a new listing.
Now Giving up the original listing, and then create a new same listing. Send your product to FBA in the name of your new listing.
After your product in the warehouse, you can combine your new listing with the original listing.
Final
Preventing stock-outs is not an easy task and neither will it happen overnight. It is important for sellers to manage well your inventory. To do so, you can try to make use of some business intelligence software to help you to analyze your sales data and build the to-do list for you.